Photo credit: globalnews.ca
Potential Rise in Consumer Prices Amid Trade Disputes
The upcoming year might usher in notable price increases for various goods. Experts assert that ongoing trade tensions with Canada’s primary trading partners, China and the United States, could lead to higher costs for items ranging from renewable energy solutions to automobiles over the next few years.
On December 16, coinciding with Chrystia Freeland’s resignation from her role as Canada’s finance minister, the 2024 fall economic statement was released. This document outlined Canada’s plans to implement tariffs on select solar products and critical minerals imported from China at the start of the new year.
Iggy Domagalski, CEO of Wajax Corporation, which supplies equipment and services across Canadian industries, indicated that the proposed tariffs on solar products and critical minerals could result in higher prices for solar panels, inverters, and batteries—items heavily reliant on imported components. The specifics of these tariffs were not disclosed in the budget document, but they are expected to take effect soon.
Erik Johnson, a senior economist at BMO Capital Markets, suggested that Chinese manufacturers might circumvent these tariffs by establishing export routes through Southeast Asian countries, thereby changing the declared country of origin for these products. “A substantial amount of trade flows through Southeast Asia, effectively allowing China to transport many solar products there to evade tariffs,” he explained.
Looking ahead, more expansive tariffs on Chinese imports could materialize in 2026, particularly concerning semiconductors, permanent magnets, and natural graphite. The document emphasized that these tariffs aim to curb non-market trade practices by China which distort market dynamics across Canada and North America.
Impact on Key Sectors
Semiconductors—essential components in various consumer electronics, including vehicles, smartphones, and laptops—shaped the discussion around these new tariffs. Canada previously experienced the ramifications of semiconductor shortages during the COVID-19 pandemic, which significantly disrupted global supply chains leading to inflated prices for goods.
While Canada does not rely heavily on China for cutting-edge semiconductor technology—mostly supplied by Taiwan—Johnson indicated that affordable, lower-tier semiconductors from China remain important for certain Canadian industries, particularly the automotive sector. Consequently, consumers in Canada might see higher vehicle prices as a result of these tariffs.
Moreover, disruptions in the supply of semiconductors, which are critical for electric vehicles, could further challenge Canada’s automotive industry, inflating prices at a time when the transition to electric vehicles is ongoing.
Domagalski expressed concern about the potential effects of tariffs on permanent magnets, crucial for applications like heavy-duty electric motors and wind turbines, suggesting that such tariffs could lead to project delays and increased costs in the construction of renewable energy infrastructure.
Context of Canada-U.S. Trade Relations
Historically, trade relations between Canada and the United States have been closely interlinked. Following his election victory, U.S. President Donald Trump proposed imposing a 25 percent tariff on all goods imported from Canada.
Johnson remarked that maintaining a cooperative trade relationship with the U.S. is vital for Canada, especially considering that approximately 20 percent of Canadian GDP depends on exports to the United States. He cautioned that excessive tariffs could damage this critical economic relationship.
Despite the importance of this trade dynamic, the Canadian government’s recent statements signal a willingness to adopt reciprocal measures in international commerce. The fall economic statement noted that “reciprocity will be considered a requirement for all federal spending and policies.”
Domagalski warned that retaliatory tariffs from China could further complicate supply chains for Canadian industries, potentially elevating costs for machinery and equipment typically sourced from the U.S., thereby affecting manufacturing and energy production sectors.
In the event Canada were to engage in retaliatory tariffs against U.S. products, Johnson predicted significant price hikes, leading to broader inflationary pressures.
Source
globalnews.ca